Displaying items by tag: Holcim

It's been an expensive few weeks for Holcim. First, the Venuezuelan state-run outfit Corporación Socialista Del Cemento failed to pay its last instalment of US$97.5m in compensation for its forced nationalisation in 2008. Then the European Court of Justice dismissed Holcim's lawsuit against the European Commission over the theft of 1.6 million emissions allowances in 2010. Here we concentrate on the second story.

Holcim Romania's CO2 accounts held within the Romanian National Registry for Greenhouse Gases were illegally accessed by hackers in November 2010. 1,000,000 CO2 allowances were transferred to an account in Liechtenstein. Another 600,000 CO2 allowances were transferred to a company in Italy, which had account registries in Italy and the UK. Parts were then transferred to accounts in the Czech Republic, the UK and France before being sold on to emissions exchanges in Paris and Amsterdam.

Holcim then tried to sue the Commission, which administers the bloc's electronic emissions trading network, in 2012 for failing to freeze the accounts containing the stolen units, for not returning them and for allowing other companies to turn them in for compliance under the EU Emissions Trading System (ETS). The multinational building materials producer tried to force the commission to pay it Euro17.6m for damages associated with the theft. The amount was equivalent to the 905,000 allowances that remain unaccounted for at a spot price of Euro14.6/unit and an interest rate of 8%.

Other registries were also targeted in early 2011. As much as Euro30m in carbon allowances were stolen at the time, leading to exchanges having to stop trading temporarily.

Although this is a relatively small amount for a multinational company that reported net sales of over Euro16bn in 2013, it feels harsh. If a personal investor had assets stolen from a bank or investment scheme they would expect some sort of compensation.

It should be noted though that it is unclear how the hackers gained entry to Holcim's account details. Successful 'phishing' for account logins via fake emails and the like might suggest lax security on Holcim's side. Or a more conventional hack on the registry server might suggest loose security on the registry's side. Add to this the fact that the price of carbon allowances has fallen since 2010. Reuters estimated that the outstanding allowances would be worth Euro5.1m today.

Hopefully the thefts in late 2010 and early 2011 can be marked down as teething problems. Yet the European Union Emission Trading Scheme is compulsory for 11,000 power stations and manufacturing plants. Any European company that may be less keen on the scheme is unlikely to have its fears settled by high profile cases of carbon credit thefts or the current low price of trading.

Meanwhile, companies and investors involved with China's Guangdong Province carbon emission trading scheme, the world's second biggest such scheme after Europe, may well be watching what happens in Europe closely.

A significant amount of recent news has come from the fallout from the proposed LafargeHolcim merger. Lafarge and Holcim, as well as a raft of global cement producers, are stepping up activity and those outside the deal are starting to jostle for position. They will want to take advantage of the many opportunities to snap something up from the long list of assets to be sold.

First up, Turkey's Sabançi Holding has been reported to be investigating the LafargeHolcim divestments, although the actual targets were not reported. There are none on offer in Turkey itself but potential Sabançi interests could lie in nearby Romania, Serbia or Hungary. Of course, it isn't possible to rule out any wider ambitions.

Next we have Elementia, which has acquired Lafarge's former stake in their Mexican joint venture, prior to the announcement of its initial public offering there. In Singapore, CVC Partners and the Government entered discussions over the purchase of assets. It was earlier agreed by the Singaporean competition authorities that Lafarge and Holcim would be able to merge due to them being relatively small players in that market.

Meanwhile, in the UK and the US, HeidelbergCement is positioning itself via share deals in its subsidiary Hanson Building Products so that it may bid for the LafargeHolcim divestments in the US and UK. Hanson Building Products has filed for an Initial Public Offering in the US in preparation for HeidelbergCement to sell it later in the year. This sounds like a case of HeidelbergCement focusing on its core markets of cement.

There have also been moves by Lafarge and Holcim, most notably their approach this week to the European Union (EU) prior to the merger. The multinationals plan to iron out possible EU concerns over the merged company's market power before filing for approval of the deal, the step that starts an EU review.

Activity seems to be hotting up ahead of the LafargeHolcim merge and it will only intensify. It will be interesting to see which other multinational and regional players decide to 'show their hand' through the rest of the merger process. There are many more assets in Austria, France, Germany, the UK, Canada, Mauritius, the Philippines and Brazil to be divided up before the LafargeHolcim merger can be completed.

It has been another week of financial results from the global cement industry, with big hitters Lafarge and Holcim reporting what some might call 'concerning' numbers for the first half of the year. Both cement producers are, of course, making preparations ahead of their proposed merger, which could come to pass within 12 months, all being well. But are things well?

In the first half of 2014, Lafarge saw its earnings before interest, tax, depreciation and amortisation (EBITDA) decrease by 2%, with sales down by 5%. Lafarge noted that its shrinking size, this week highlighted by the sale of its Pakistani assets, and adverse exchange rate effects did not help matters. CEO Bruno Lafont was up-beat in asserting that North American and European markets would see improvements over the rest of 2014. Meanwhile, things are slightly better at Holcim, which reported an increased EBITDA (albeit just by 0.2%) as well as like-for-like sales that were up by 4.8% compared to the first half of 2013. However, its increased sales volumes and revenues could not prevent a fall in net income.

If one takes these results together, the first half of 2014 seems to been one of general stagnation for the future LafargeHolcim. It is important to remember that even more asset sales are inevitable, mainly from the weaker performer Lafarge. We are left to ponder how the new LafargeHolcim will perform in 12 months time.

At present, without serious improvement across all world economies, it is likely that LafargeHolcim (and other multinational producers) will continue to be on relatively shaky ground post-merger. The reality is that many of the promising markets that the company will serve are no longer rapidly-growing emerging economies, but are instead caught up in lower-than-expected growth (for example in Indonesia, India, China and Brazil), political disputes (for example in Algeria, Thailand, Eastern Ukraine and the Middle East) and other damaging events (for example the Ebola outbreak in West Africa). The global economy is certainly 'uneven,' as Holcim's CEO Bernard Fontana said in Holcim's results statement, but it also seems to be getting more uneven. Simple geographical and income groupings for countries, for example 'Far East = Profit,' are becoming increasingly out of date.

Navigating such a rapidly-changing world is, in one sense, less difficult for larger companies than smaller ones because risk can be spread over a much wider range of economies. However, larger companies are also slower to react to changes and the appropriateness of their responses may not be ideally tailored to individual markets. When LafargeHolcim comes to be, it will likely suffer also due to the inherent difficulties of merging two such large firms that may not see eye-to-eye on all issues. This will have to be done without some of its best assets and a lot of its 'run-time' will be dedicated to the merging process. In such an environment it is easier to be distracted from its main tasks: is it possible that this effect is already becoming apparent? As Lafarge and Holcim's latest results show, there is little room for deterioration in their results.

There is a key question: Is the LafargeHolcim first half EBITDA slide a sign of poor markets or related to preparations for the merger that shareholders will tolerate as they anticipate future riches? Will LafargeHolcim be profitable in the long-run?

The single most notable observation regarding the last seven days is that the cement industry news has been overwhelmingly positive. After many years of consolidations, buy-outs and financial losses, it seems the global cement industry is finally turning itself around, with reports citing numerous expansion projects and growing cement demand in most regions.

The Indian government is taking control of its coal shortage problem with the appointment of a new Inter-Ministerial Task Force (IMTF) to rationalise existing coal resources. India's Ultratech Cement reported a 12% increase in cement sales in the April - June 2014 period, while both Shree Cement and Maha Cement are investing heavily to increase production capacity for the Indian and nearby Sri Lankan markets. In Myanmar, Thailand's Siam Cement Group (SCG) plans to construct a new 1.8Mt/yr capacity cement plant, while China's Guangdong Province has cut another 3.23Mt/yr of cement production capacity to meet overcapacity issues and reduce harmful emissions.

Signs also point to an anticipated upswing in cement demand in Europe. The UK's Hope Construction Materials has invested in 36 new Mercedes-Benz trucks for cement dispatch, while in Croatia, Holcim has predicted a 15% revenue increase in 2015, having finally completed consolidation of its unprofitable operations. Eurocement plans to construct a new 2.4Mt/yr capacity cement plant at the site of its Akhangarancement plant in Uzbekistan, although the existing plant is currently under scrutiny by the State Competition Committee and the subject of a nationalisation attempt by the Uzbek authorities.

In the US, Eagle Materials has reported a 4% increase in cement sales volumes in the April – June 2014 period, while Holcim has broken ground on its Hagerstown, Maryland cement plant modernisation project. Similarly, cement demand in Latin and South America continues to grow. Cemex Latam Holdings reported a 6% year-on-year increase in cement sales for the first half of 2014, while Mexico's Cemex reported that net sales grew by 4% year-on-year during the second quarter of 2014. Cemento Andino is building a new line that will triple the cement production capacity of its Trujillo plant in Venezuela to 600,000t/yr.

In Africa, Tanga Cement Company Limited (TCCL) plans to increase its cement production capacity, having signed an agreement to double its power supply to 40MW. Tunisia's Carthage Cement has reported a 419% increase in turnover for the first six months of 2014, while in Egypt, Suez Cement reported a 1% increase in cement demand. Lafarge's Nigerian subsidiary, Ashaka Cement, is fast-tracking the expansion of its Gombe State plant to meet demand, while the Standards Organisation of Nigeria (SON) is forging ahead to improve cement standards and consumer confidence. ARM Cement's revenues grew by 16% for the first half of 2014, including a 10% increase in Kenya and a 33% increase in Tanzania.

Finally, Lafarge and Holcim are moving forward with their mega-merger, officially notifying various competition authorities around the world. While the global cement industry will undergo some major changes as a result, the upheaval could prove positive for those players willing to seize the day.

An update on the algae bioreactor project at Votorantim's St Marys cement plant in Canada this week provides a good opportunity to review this particular aspect of carbon sequestration. The project, run with Pond Biofuels, went live in 2009. It has now reached its third generation bioreactor at the site.

Little or no performance data has been released generally so we have no way at present of knowing how viable the process is commercially. Cement backers, Brazilian firm Votorantim, are certainly excited by the project even if only for the sustainability kudos it gives them. Director Edvaldo Araújo Rabello presented the project as one of the company's highlights at a keynote presentation at the 6°CBC Congresso do Cimento held in São Paulo, Brazil in May 2014.

One hurdle for the St Marys pilot is the relative lack of light, a required input for algae photosynthesis, even in Canada's most southerly state. Pond Biofuels have reportedly dodged this by using continuously flashing LEDs to simulate artificially short days that encourage growth. On paper or powerpoint a process that could potentially cut even a proportion of CO₂ emissions from a cement plant sounds enticing. Yet if it creates more CO₂ than it saves, through electricity requirements for example, than it isn't worth using.

This is probably what shelved Lafarge's Carbon Capture and Transformation project. It ran a pilot project at its Val d'Azergues plant in France in 2009 with Salata GmbH. The pilot worked but the researchers decided that new advances in processes and biotechnology were required to make the economic and environmental results better. Other companies have also had problems. Holcim started its Aurantia – GreenFuel project in late 2007 at its Jerez cement plant in Spain, backing it with an investment US$92m. This project stalled when GreenFuel shut in 2009 citing lack of funding as the recession hit.

ACC in India also reportedly started its own algae project in 2007, mentioning it in its sustainability report, but nothing more has been reported since. Since this burst of interest InterCement has invested US$2.5m towards algae research in 2013 working with the Federal University of São Carlos, the Federal University of Santa Maria and Algae Biotecnologia.

Algae-based carbon projects for cement plants may remain stuck in the research stage but the market for biofuels continues to grow. For example, this week we report that Ohorongo Cement in Namibia plans to increase its use of blackthorn as a biofuel to use as an alternative fuel in co-processing. The prospects of turning waste CO₂ into a valuable commodity remains uncertain, but the rewards are great. Let's wait and see what St Marys can do.

This week saw Lafarge and Holcim announce a list of proposed asset divestments following months of research by a Divestment Committee. The mass divestment is planned so that competition authorities around the world can approve the proposed Euro40bn merger of equals to produce LafargeHolcim. When the merger was initially proposed on 7 April 2014, Lafarge and Holcim estimated that some Euro5bn of asset disposals would be necessary and they are already well on their way.

Europe is facing the brunt of asset divestments, as this is where the companies have the largest market overlap. Holcim plans to sell all of its assets in Hungary and Serbia, while Lafarge will sell all of its assets in Germany, Romania and the UK (with one possible cement plant exception). In Austria, Lafarge has opted to divest its Mannersdorf cement plant, while in France it would sell its Reunion Island assets (excluding its shareholding in Ciments de Bourbon). Holcim plans to sell all of its assets in France except for its Altkirch cement plant and aggregates and ready-mix sites in the Alsace Region.

Elsewhere in the world, Holcim plans to sell all of its assets in Canada and Mauritius. In the Philippines the companies plan to combine the operations of Lafarge Republic Inc and Holcim Philippines Inc and to divest Lafarge's Bulacan, Norzagaray and Iligan plants. In Brazil, where Lafarge and Holcim both have a significant presence, the companies plan to announce their intentions after collaboration with CADE, the country's competition authority. There is little market overlap in most of Asia and the Middle East: Lafarge's assets in Malaysia and Syria complement Holcim's strong presence in India and Indonesia.

So far, Lafarge has consolidated its African operations by establishing Lafarge Africa and selling its assets in Ecuador. Holcim has been granted approval from the European Competition Commission to purchase Cemex West in Germany and, most recently, Lafarge has announced that it intends to buy out its joint venture partner, Anglo American, from Lafarge Tarmac in order to sell the entire business.

While the asset divestment list shows good will to global competition authorities, there remains no guarantee that Lafarge and Holcim will not need to divest even more assets. However, by nominating such a large number of divestments in the first instance, the companies have shown willing to cooperate with anti-monopoly measures, potentially easing the path of the LafargeHolcim mega-merger.

Bad news for both cement workers and local clinker production in Australia and New Zealand this week with the announcement of job cuts and planned closures of clinker plants. Holcim New Zealand has confirmed that around 120 jobs will go when its Westport cement plant closes in 2016 along with the rationalisation of a few management jobs when the company integrates its Australian and New Zealand businesses. Meanwhile, Boral announced that it will cut 28 jobs from its Maldon Cement plant in Australia when it ceases clinker production at the end of 2014.

With these planned closures cement production capacity in the antipodes will shrink by just over 1.5Mt/yr to around 7.5Mt/yr, a reduction of over 15% Alongside the drop in native cement production players are re-focusing on an import market.

The trend is highlighted by the fact that Boral's Maldon site will retain its grinding mill. Earlier in June 2014 it was reported that Vue Australia is planning to convert a brownfield site on Kooragang Island, New South Wales into a cement storage and transfer plant. In February 2014 Cockburn Cement cut 44 jobs at its Munster cement plant as it started to restructure its operation for grinding using imported clinker. Also in February 2014 Cement Australia, the joint-owned company between Holcim and HeidelbergCement, had a US$17m expansion of its cement loading and storage facility for processing at Osborne approved by local authorities.

Following its restructuring in 2013, which has seen clinker production cease at Waurn Ponds and soon to cease at Maldon, Boral reported that its cement revenues grew in its 2012 – 2013 financial year. This is likely to continue when the 2013 – 2014 year is reported in August 2014. Likewise, Adelaide Brighton reported growing revenues in 2013. Cement Australia reported growing cement sales year-on-year in the first quarter of 2014 following reduced sales in 2013.

All in all the local cement industry in Australia and New Zealand has taken quite a knock in recent years. Reasons for this have included a poor recovery for the local building materials market, high-energy costs, the Carbon Tax in Australia, competition concerns and the spectre of cheap clinker imports from East Asia undercutting everything. However the return to revenue and then profit suggest that the worst of the job cuts and clinker production shrinkage is over.

In this business environment, revelations such as a China Resources spending upwards of US$300,000 on golf are unlikely to garner sympathy for any measures that appear to reduce international competiveness for Australian industry. The current Australian government led by Tony Abbott is set to make good on its promise to repeal the Carbon Tax from July 2014. The environmental effects will be unclear given that the tax may have cut emissions from participating companies by 7%, falling from 342Mt in 2011 – 2012 to 321Mt in 2012 – 2013, according to the Investor Group on Climate Change. As is usual with localised carbon taxation or legislation, whether global emissions fell during this period or whether emissions grew in looser jurisdictions to compensate is hard to calculate. The trend towards clinker imports suggests that there may be a significant contribution from the latter.

The creation of Lafarge Africa, the clearance of the Cemex West acquisition by Holcim in Germany and the sale of Lafarge's assets in Ecuador all hint at the scale of business that LafargeHolcim will command when it comes into existence. Despite the media saturation of coverage on the merger the implications in developing markets are still worthwhile exploring, especially in Latin American and Africa.

In sub-Saharan Africa, Lafarge is merging its cement companies in Nigeria and South Africa to create Lafarge Africa. Analysts Exotix have described the move as, 'the birth of a leading player on a continental scale'. Indeed, if Lafarge wanted to grow Lafarge Africa to encompass its many other African cement producing subsidiaries it could hold at least 17 integrated cement plants (including plants in north Africa) with a cement production capacity of at least 40Mt/yr in 10 countries and infrastructure in others. That puts it head-to-head with Dangote's plans to meet 40Mt/yr by the end of 2014 through its many expansion projects. Following these two market leaders would come South African-based cement producer PPC with its expansion plans around the continent.

Meanwhile across the Atlantic in Latin America the Lafarge-Holcim merger threatens Cemex. Unlike in Africa where Lafarge has a ubiquitous but disparate presence, Lafarge and Holcim's cement assets are more evenly scattered around the Caribbean, Central and South America. In terms of cement production capacity Cemex and Lafarge-Holcim will both have around 30Mt/yr, with Cemex just in front. The next biggest cement producers in Latin America will be Votorantim (present mainly in Brazil) with just over 20Mt/yr and Cementos Argos (Columbia) with about the same. This includes some new acquisitions in the United States for the growing Columbian producer. In Ecuador Lafarge and Holcim held over 50% of the market share, hence the sale by Lafarge of its assets to Union Andina de Cementos for US$553m.

Depending on how well the merger integrates the two companies, corals the various subsidiaries and implements strategic thinking the merger could just create business as usual with little disruption to the existing order. Yet in both continents the merger has the opportunity to shake up and reinvigorate the cement markets as existing players suddenly discover serious new competition and react accordingly.

Africa has a population of 1.1bn and it had a Gross Domestic Product (GDP) of US$2320/capita in 2013. South America had a population of 359m in 2010 and a GDP of US$8929/capita. This compares to US$27,250/capita in Europe and US$54,152/capita in the US. The economic development potential for each continent is humongous. Post-merger, LafargeHolcim will be first or second in line for some of this potential in Latin America and Africa.

The Brazilian cement industry took a knock last week when the competition watchdog Cade (Administrative Council for Economic Defence) confirmed its intention to issue the sector with fines worth a combined US$1.4bn.

Under the terms of the ruling, Votorantim will have to pay US$672m, Cimpor will pay US$133m, InterCement Brasil will pay US$108m, Itabira will pay US$184m, Holcim will pay US$227m and Itambé will have to pay US$39.4m. The companies involved will be forced on average to sell 24% of their assets. Votorantim, for example, will be compelled to divest 35% of its cement assets or 11Mt/yr of production capacity. In addition a fine of nearly US$2m is to be imposed on the cement associations ABCP and SNIC.

To give these figures some context, Votorantim reported a net profit of US$105m in 2013 across all its business lines including cement, metals, mining and pulp. The fine Cade wants to impose is over six times greater than this! A fine of this size will be a serious setback for Votorantim if it goes through. Votorantim's net revenue for its cement business in 2013 was about US$5.5bn. This places the fine at just over 10% of company annual turnover, a common upper limit for fines imposed by anti-competition authorities around the world. 10% of turnover, for example, is the maximum percentage fine that European Union competition regulators can impose.

Although hard to compare with the other Brazilian cement producers due to differences in financial reporting, the proposed fines seem equally tough on the other companies. Before the acquisition of Cimpor inflated its financial figures, InterCement reported a net revenue of US$1.2bn in 2011. This places its fine at 9% of annual turnover. Holcim's net sales in its Latin American region as a whole, including operations in Brazil, totalled US$3.73bn in 2013.

Both Holcim and Cimpor have issued corporate rebuttals to Cade insisting that they followed and still follow all the necessary competition laws. Both companies intend to fight the decision. Votorantim went further in its response saying that it considering the fine 'unjust and unprecedented' and it warned that the ruling would cripple any investments in the Brazilian cement sector. The ruling also forbids the company from opening new factories within the next five years, places limits on the company taking out new loans and prevents it from consolidating its market share.

Internationally, the Cade fine surpasses the US$1.1bn Competition Commission of India penalty imposed against 11 producers in India in 2013. Other recent anti-trust fines against the cement industry include a Euro80m fine in Poland that was upheld on appeal in 2013 and the US$19.3m Lafarge was charged in South Africa in 2012.

The prosecutors pointed out that work on public roads had been inflated by nearly US$8m. Overall they reckon that the cartel cost the Brazilian economy US$6.3bn. Examples likes this are unlikely to gain sympathy for the accused cement producers from a Brazilian public already angry about the amount of public money spent on building excessive sports stadiums and the like for the Football World Cup later in June 2014 and the Olympic Games in 2016. In the meantime though – over to the lawyers.

India: JK Cement has announced that the Board of Directors has appointed Paul Hugentobler as an additional director in the Board, to hold office until the conclusion of the next Annual General Meeting. Previous to the appointment, Hugentobler served as an advisor to Holcim between 1 January 2014 to February 2014. Between 1999 – 2000 he was the CEO at Siam City Cement and between 1980 – 1994 Hugentobler was a project manager at Holcim Group Support.